WASHINGTON - U.S. Senators Amy Klobuchar (D-MN), Chris Van Hollen (D-MD), and Tammy Duckworth (D-IL) introduced two bills to close a loophole created by the 2017 tax law that encourage U.S. companies to move jobs and operations overseas in order to minimize their tax liability and to ensure the data on tax havens and offshoring is publicly available. The Removing Incentives for Outsourcing Act, led by Senator Klobuchar, would eliminate an unfair incentive that allows U.S. companies to use excess foreign tax credits (FTCs) to shelter profits in tax havens. The Disclosure of Tax Havens and Offshoring Act, led by Senator Van Hollen and also cosponsored by Senator Sheldon Whitehouse (D-RI) will require corporations to disclose their financial reporting on a country-by-country basis so Americans can see the extent to which corporations are abusing tax havens or offshoring jobs.
“Our tax laws should encourage American companies to keep jobs in the United States, not send them overseas. Instead of creating new and destructive incentives to move jobs and operations abroad, as the 2017 tax bill did, we should work to maintain jobs at home,” Klobuchar said. “Senators Van Hollen, Duckworth and I are reintroducing these bills to close loopholes and protect American workers.”
“Congress should be focused on growing the economy and creating good-paying American jobs – but the Republican tax law made it so that companies are rewarded when they ship jobs overseas. That has to change,” Van Hollen said. “These two bills will ensure that we know when corporations are offshoring jobs or sheltering profits in tax havens, and close tax loopholes that create perverse incentives for companies that outsource jobs. It’s part of our ongoing fight for American workers.”
“Our tax laws should encourage companies to keep jobs and investments in the United States, not reward corporations that send jobs overseas and fail to pay their fair share by abusing foreign tax shelters,” Duckworth said. “I’m proud to join Senators Klobuchar and Van Hollen in re-introducing these bills and hope they pass the Senate quickly.”
Under current law, a U.S. corporation may use foreign tax credits (FTC) to reduce U.S. tax liability on offshore profits by whatever amount the company paid in taxes in the country in which it earned the profits. While this makes sense on a per-country basis, the 2017 tax law’s use of a blended or “global rate” provides a perverse incentive for companies to shift jobs and operations overseas in order to preserve the strategic value of tax havens.
The Removing Incentives for Outsourcing Act would fix this problem by:
- Instituting a “per-country” minimum tax instead of a blended or “global rate” under current law and eliminating companies’ ability to deduct 10 percent of their return on tangible assets before the tax rate on foreign income applies. These changes would remove the incentive for companies to shift U.S. jobs and physical operations overseas (to countries with tax rates similar to the U.S.) in order to preserve the value of using tax havens.
- Requiring the Joint Committee on Taxation (JCT) to conduct a study of various proposals for taxing overseas income and evaluate the options according to whether the proposal minimizes opportunities for avoidance of U.S. taxes and minimizes incentives for outsourcing American jobs.
The Disclosure of Tax Havens and Offshoring Act would ensure there is more transparency on this issue by:
- Requiring large corporations to disclose basic information on each of their subsidiaries, and country-by-country financial information that sums together all of their subsidiaries in each country – including profits, taxes, employees, and tangible assets.
- All of this information is already reported to the IRS, under an international OECD framework, but this would ensure public disclosure to provide data on how international tax laws are working and where corporations are locating their business activities and taxes.
“These two bills take direct aim at some of the biggest problems with our international tax system,” said Clark Gascoigne, deputy director of the Financial Accountability and Corporate Transparency (FACT) Coalition. “The Removing Incentives for Outsourcing Act would reduce the outrageous tax incentives that reward corporations the more they shift profits to tax havens and real operations offshore. Requiring that tax rates apply to multinationals' offshore profits on a per-country basis is a necessary piece of any effort to end the incentive for offshore tax games. The Disclosure of Tax Havens and Offshoring Act would codify the emerging trend toward transparency on where multinational companies do business and pay taxes. Shining a light on the offshore practices of corporations would help expose abusive tax schemes — protecting honest taxpayers, informing policymakers, and safeguarding investors.”
The Removing Incentives for Outsourcing Act is also supported by the Institute on Taxation and Economic Policy (ITEP).